UK: Contract Certainty Under The Hammer

Terms of sale can sometimes lead to unexpected and perhaps even
unintended outcomes. Achieving contract certainty might not be at
the forefront of bidders' minds when buying under the hammer at
auction.

This seems to have been the case for Philippe Dupont, a
Luxembourgish collector. He filed a law suit in a New York
District Court on 18 April 2017, claiming that Christie's
failed to deliver up a David Hammons body print sold to him at auction
entitled "Coach" (1974). As reported by The Art
Newspaper, Mr Dupont was successful in securing the art work during
the auction on 3 March for $475,500 (with premium). However,
Mr Dupont's excitement in placing the winning bid was displaced
when, after receiving emails from Christie's congratulating him
on his purchase and wiring the purchase monies to them,
Christie's telephoned Mr Dupont to purportedly cancel the
sale. It transpired that they had failed to call another
prospective bidder, and Christie's now wanted to re-auction the
work to include this bidder.

While the Christie's terms of sale allows them to
"...continue the bidding, determine the successful bidder,
cancel the sale or re-offer and re-sell" where there is error
or dispute during or after an auction, it is unclear whether their
entitlement to cancel a sale inures beyond the transfer of
ownership. Such terms appears to be commonplace auction
houses' terms of sale, and they apparently confer on the
auction house a very wide discretion to cancel a sale after payment
has been made by the bidder – and possibly even after title
in and possession of the lot has passed to the bidder – thus
depriving the parties of the commercial certainty of a transaction.

While the outcome of Mr Dupont's New York lawsuit is eagerly
awaited in the hope it might provide some guidance – at least
under New York law – about the extent to which terms of sale
can be relevant or binding once title has passed, his unfortunate
experience raises broader issues regarding the importance of
clarity and certainty of outcome in contractual terms. These
considerations are not relevant merely to art and auction
transaction in the United States, but to commercial transactions in
every common law jurisdiction where the contractual position is not
immediately clear. For example, while the rules on passing of
title and risk under English law are clearly set out in the Sale of
Goods Act 1979 and the Consumer Rights Act 2015, these have to be
read in conjunction with the specific terms of a particular
contract. The situation may be further complicated if the
terms of sale do not provide for a governing law, or includes a
transnational element.

Lack of contract certainty affects not only buyers, sellers and
auction houses; it may also lead to problems with insurance in the
unfortunate the subject matter of the sale is lost or damaged
following the sale. If, for example, anything were to happen
to the sold item, such uncertainty could lead to potentially
lengthy and costly disputes about whose responsibility it was to
insure the item, whether there was an insurable interest in the
item, and the moment when an insurer has come on risk.

To avoid becoming stuck between a hammer and an anvil, and
whether or not you are a buyer, seller or auction house, or an
insurer or insured, it is vital to ensure that the terms of sale
that bind your transaction give you the contract certainty you need
such that you are sure about the end result.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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